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Vulnerability - what progress has been made and what can we expect in 2023?



Towards the end of last year, the FCA’s latest Financial Lives survey found that the number of adults with low financial resilience had leapt to 12.9 million – up from 10.7 million in 2020 – with the number of adults who were “heavily burdened by their domestic bills and credit commitments” thought to be the primary cause. The Organisation for Economic Co-operation and Development reported that Britain was suffering the worst cost-of-living crunch of any G7 nation, while The Money and Pensions Service found that over a million Londoners had less than £100 in savings.


In a nutshell, we saw a real increase in financial vulnerability during 2022. And with the cost-of-living crisis continuing to take a heavy toll, we can only expect another difficult year to come in 2023.


In response, the FCA’s implemented its Consumer Duty initiative to ensure better outcomes for vulnerable customers. This will take effect at the end of July 2023, and will be a significant help to those who are at risk. However, to reduce the chance of a last-minute rush, firms were instructed last year to have created an action plan by the end of last October. You would expect, therefore, that as we neared the end of 2022, many would be in a strong position to support their most vulnerable customers.


The reality seemed far from this.


Shortly before the October deadline, research carried out by MoneyHub revealed that only one-in-five (22%) firms believed they were compliant with the new regulations. A further 56% claimed to have no initiatives underway to become compliant by July.


A few months on and a more recent report suggests that 71% of advisers have established plans to deal with Consumer Duty, while 86% are confident in their strategies to identify vulnerable customers. This might be a comfort, if we could also be confident that the industry fully grasped the extent of the problem. Most of the advisers who were quizzed (68%) estimated that an average of 12% of the customers they served were vulnerable, while 19% of consumers in the same survey self-identified as vulnerable.


In their defence, the survey conducted by the Money and Pensions Service went on to show that 74% of people avoid discussing their finances, out of shame, embarrassment, or a fear of either burdening others or not wanting to be judged. But there’s more to it than that. Through our own work at Comentis, we’re still seeing widespread denial that individual assessments need to be made at every active service point.


This has to change. It just isn’t possible to assess whether a vulnerable person has had a good outcome if we don’t actually know whether they’re vulnerable. Firms must be capable of identifying vulnerability themselves – and of doing so at every stage of the process.


What can we expect in 2023?


It’s evident there’s still work to be done before Consumer Duty takes effect. But help is out there. The FCA frequently publishes information for those who are just getting started, and regularly updates it in response to questions from the community. There’s plenty of talk about how “the door is open” to those in need of “constructive conversations” on the guidance, while various industry bodies and financial services firms are publishing their own support guides to help advisers get their plans on track.


But training alone won’t be enough. Neither will manually monitoring for potential vulnerabilities. Vulnerability is the foundation on which the Consumer Duty pillars are built, those being product and service, fair pricing, customer support and customer understanding. It’s no use trying to reverse-engineer it into these four areas. Identifying and supporting vulnerable customers has to be as systematic as it is consistent. And for that to be achieved, a third-party specialist platform is the most reliable solution.


Technology-driven assessment tools exist that can help to identify financially vulnerable customers and get the right systems in place, removing subjectivity from the process and ensuring consistency across a whole client base. There’s a case to be made that these kinds of solutions are the only way to ensure all vulnerability drivers are in scope. By combining clinical expertise with hard data, they can provide reassurance that a firm’s systems and controls will stand up to the scrutiny of regulatory requirements.


In the long run, this is a process that will benefit everyone; clients and firms alike. If you’re struggling, or if you know that you need to bring in additional expertise, the bottom line is: don’t delay.


Jonathan Barratt

CEO, Comentis

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